A Global Reach with a Local Perspective www.decosimo.com Calculation Engagements BRENT MCDADE – [email protected]
A Global Reach with a Local Perspective
www.decosimo.com
Calculation Engagements
BRENT MCDADE – [email protected]
Business Valuation
Litigation Support
Transaction Advisory
Decosimo Advisory Services
The standards that apply to valuation work
The engagement types these standards define
Myths about calculation engagements
Truths about calculation engagements
Differences between calculations and other types of
reports
Group discussion / best practices
What We Will Cover Today
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Standards that Apply to Valuation Work
AICPA
IBA
NACVA
ASA
The Appraisal Foundation
Standards
Applies to multiple appraisal disciplines
Longest standing set of standards we have
Applies to all appraisal practice
USPAP
Jurisdictional exception rule
Scope of work rule
Competency rule
Ethics rule
Standard 9
Standard 10
“I don‟t have to follow USPAP”
Apply to members of the ASA
Define 3 acceptable scopes of work
Appraisal
Limited appraisal
Calculations
Development standard very general
Reporting standard defines comprehensive written
business valuation report
Incorporates USPAP
ASA Standards
IBA and NACVA standards very similar to AICPA
Intent to move to a single set of standards
If you comply with AICPA, you substantively comply
with IBA and NACVA
AICPA, IBA, NACVA
AICPA members performing valuation services EXCEPT:
Value provided by the client or a third party AND Member does not apply valuation approaches and methods
AND
Member does not report on the value of the subject interest
Value part of an audit, review, or compilation
Members not in public accounting for their employer
Damages engagements (unless value is the measure)
Mechanical computations
Jurisdictional exception
When does SSVS 1 apply?
Valuation engagement
Conclusion of value
More procedures
Engagement calls for analyst to estimate value
Analyst free to apply appropriate approaches and methods
Calculation engagement
Calculated value
Client and analyst agree on approaches and methods
Analyst performs calculations consistent with agreement
Consistent with ASA definition
SSVS No 1 Engagement Types
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Common Calculation Report Myths
“A calculation engagement is a step towards full
appraisal.”
“A calculation gets to the same conclusion as a full
appraisal – just with less verbiage.”
Common Calculation Report Myths
“A good engagement strategy in litigation support is
to begin with a calculation engagement and then
„upgrade‟ to a full report later.”
“The incremental expense of a full appraisal is in the
writing of the report.”
Common Calculation Report Myths
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What is a Calculation Engagement?
Must at least consider:
Identity of client
Identity of subject interest
Interest’s ability to control and marketability
Purpose and intended use of calculation
Intended users and limitations on use
Valuation date
Standard and premise of value
Sources of information
Agreed-upon approaches and methods
Subsequent events, if applicable
Calculation Engagement per SSVS 1
Must state it is a calculation report
Must include a representation by appraiser (adapted)
Identify any hypothetical or limiting conditions
Any application of the jurisdictional exception
How work of an outside specialist used
Disclosure regarding subsequent events
Calculation Report per SSVS 1
Certain calculation procedures performed, identify
subject interest and calculation date
Description of calculation procedures/scope of work
Purpose of calculation & non-use for other purposes
Identify compliance with SSVS of AICPA
Identify level of value, valuation date
Description of calculation:
Does not include all procedures of valuation
Were valuation performed, results may be different
No obligation to update, signature of appraiser/firm
Resulting number is a “calculated value”
Calculation Report Required Statements
Based on the performance of limited procedures
agreed upon by the appraiser and client
May be based on consideration of only limited
relevant information
Appraiser collects limited information and performs
limited analysis
May be based upon conceptual approaches agreed
upon with the client
Calculation Engagement per ASA
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What is a Valuation Engagement?
1. Engagement calls for analyst to estimate the value
of a subject interest
2. Analyst is free to apply valuation approaches and
methods he or she deems appropriate in the
circumstances
3. Sounds a whole lot like USPAP “appraisal”
Valuation Engagement per AICPA SSVS 1
Detailed Report
Pretty close to BVS-VIII
Compliant with Standard 10
Summary Report
Not compliant with BVS-VIII
Probably compliant with Standard 10
Valuation Engagement Documentation
Paras 71-77 of SSVS No. 1
Additional requirements for summary report:
Identify client (perhaps implicit in calculation report
due to “any other party…” requirement)
Intended users (perhaps implicit in calculation report
due to “any other party…” requirement)
Specify valuation date
Specify premise of value
Specify standard of value
List sources of information
Calculation Report vs Summary Report
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Back to the Myths
“A calculation engagement is a step towards full
appraisal.”
Calculation engagements follow agreed-upon
procedures, approaches, and methods
Those agreed-upon with the client may not be those
the appraiser would have used in a full appraisal
Revisiting Calculation Myths
“A calculation gets to the same conclusion as a full
appraisal – just with less verbiage.”
May not use same valuation procedures
Reporting requirements not all that different from a
summary report on a valuation engagement
Reporting of industry and economic conditions not all
that much more work than researching
Revisiting Calculation Myths
“A good engagement strategy in litigation support is
to begin with a calculation engagement and then
„upgrade‟ to a full report later.”
Initial agreement on procedures can create
perception of lack of independence
Seems oddly coincidental that an ultimate conclusion
would be exactly the same
Revisiting Calculation Myths
“The incremental expense of a full appraisal is in the
writing of the report.”
Compared to a summary report, a calculation report is
not all that much less effort
Revisiting Calculation Myths
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Group Discussion
Brent McDade, ASA, CBA
423.266.5212
On LinkedIn:
www.linkedin.com/in/brentmcdade
CONNECT WITH ME
The contents and opinions contained in this article are for informational purposes only. The information is
not intended to be a substitute for professional accounting counsel. Always seek the advice of your
accountant or other financial planner with any questions you may have regarding your financial goals or
specific situations.